Relative Prices, Comparative Advantage, and Trade Patterns with Three or More Countries and Goods

Abstract

The present paper shows relative price competition with constant cost production for three or more countries and goods can lead to a wide variety of complex trade patterns. The universal McKenzie-Jones efficiency in the global unit input matrix reduces to relative prices of efficient goods. Specialization requires the unlikely condition of global comparative advantage involving relative prices of all goods. Relative price competition can lead countries to diversify exports, import and export the same good, not trade, and form separate trade groups. The analysis extends restrictions on trade patterns due to inconsistent relative wages.